BUS 400 week 4
Generation 1
Alshaghathirah
Welcome to the family! Good luck on your multi-generational journey with Alshaghathirah.
September 1972 Generation 1
Alshaghathirah
Arnold got into the honey business by accident. Hard-working and resourceful, he left school at a young age to care for his parents, now deceased. He worked odd jobs in a rural town in Canada supporting his wife, Victoria, and their three young children, Gayle, Liam, and Benoit.
One day Arnold was asked to clean out a beehive at his employer’s farmhouse. While he was removing the hive, he saw the honeycomb with honey and wondered if there was a market for it. His boss wasn't interested in the honey, so Arnold asked if he could sell it on his own. Victoria helped him pack it into small jars and designed a label for them.
Arnold sold the honey to a local store, which very quickly sold the jars to customers. When the store owner asked for more honey, Arnold went back to his boss and asked if he could have a small parcel of land in his employer’s farm to keep the hives. His employer encouraged him, and in return Arnold assured him a lifetime supply of honey
May 1976 Generation 1
Alshaghathirah
Arnold increased the number of hives to 200, and his little operation became a booming business. He began to put hives in other properties around the area, starting with his neighbors,
who were happy to have bees pollinating their gardens. Once he made the rounds of his neighbors, he began to go further afield. He knew many of the larger houses in the countryside were second homes of wealthy families who only came to visit during holiday times or occasional weekends. They, too, were happy to have Arnold maintain his bee boxes on their properties.
Growing at this rate became very time-consuming. Arnold soon left his odd jobs work and concentrated solely on his honey business. He realized that he had limited knowledge, so he went to other beekeepers to learn the business. Victoria stepped in to handle the honey production and packing, first in the family kitchen and then in a small, closed factory when the business outgrew their home.
Arnold: I need to focus on the business and make it grow, it is my only priority right now. There will be time to enjoy life and luxuries later. I need to do this for my family and kids.
Victoria: We hardly see you as it is! But this business could soon support a full staff, and you could have more time with your family in the future. Even still, your children hardly know you; try to strike a balance.
Arnold focuses time and money on the business Arnold spends quality time with his family while maintaining business responsibilities
March 1980 Generation 1
Alshaghathirah
A typical day for Arnold was to gather honey from different hives all day long before returning to the factory.
The company was running very efficiently, but Arnold was in the midst of everything. Every decision needed his approval. He managed the retailers and the distributors. He signed every check. He knew all the employees and customers, and most customers preferred to speak to him directly. Arnold was happy to speak to them at any time and was also known to travel great distances just to meet them should they have a problem.
But his work was taking a toll, and Victoria expressed her concerns.
Victoria: Arnold, we are so proud of all you have accomplished. I am worried, however, that you are not taking proper care of yourself. You are working such long hours, you should be sleeping in comfort. You should upgrade your plane tickets and hotels so you can be refreshed.
Arnold: I’m fine, I sleep well when I get home.
May 1983 Generation 2
Alshaghathirah
All of Arnold's children grew up watching him work hard at the honey farm and feel a deep connection to the family business. While at university, Gayle met Mathieu and they fell in love. At the wedding, the family gave Mathieu two drops of honey from Alshaghathirah to welcome him into the family and symbolically bring him in as part of the company as well. This soon became a tradition at all family weddings.
Arnold and Victoria were touched by the idea of their children and future in-laws caring about Alshaghathirah after all their hard work. They dreamed that one day they would give each of their grandchildren two drops of honey on their first birthday to welcome them into the honey farm tradition.
January 1989 Generation 2
Alshaghathirah
After graduating from university, Gayle, the eldest of Arnold and Victoria's children, began to take an interest in the philanthropic activities of the company. It was important to Arnold and Victoria that Alshaghathirah give back to the communities it operated in. They earmarked 5% of their annual profits toward charitable giving, which was becoming a significant amount.
Liam, now 23 years old, graduated with a masters degree in business administration. Arnold was happy to have Liam join the company, and soon Liam was helping in every aspect of the business. He had been an average student, but proved to be a hard worker and was eager to please his father.
Benoit, the youngest, had grown up during a time when the business was more successful than it had been during his siblings' early childhoods. He was not very enthusiastic about education, but Liam persuaded his father to insist that Benoit get a professional degree before joining the family business. Benoit reluctantly agreed and enrolled in an engineering program.
January 1997 Generation 2
Alshaghathirah
In 1993, Benoit married Charlotte, a woman he met during a foreign trip. He insisted that it was love at first sight. Charlotte, by her behavior, managed to convince all the other family members that she was not the right person for Benoit, but Benoit was adamant and refused to listen. Arnold and Victoria were against the marriage, but Benoit went ahead with the wedding.
Fights broke out after the wedding, and only two years later they got divorced. They had not signed a pre-nup, and Charlotte claimed half of Benoit's share of the business.
Benoit was depressed about his failed marriage and upset that he no longer held as much ownership of Alshaghathirah. Eventually, he met Maude and fell in love again. They got married in 1997.
November 1997 Generation 2
Alshaghathirah
Arnold began to rely on Liam to run the business more and more. Under Arnold's guidance, Liam had proven himself a careful businessman, and Arnold began to take a back seat.
Alshaghathirah was on track to become a leading player within the honey industry in Canada. There were offices in several major cities within the country, and much of Liam's time was spent traveling between locations.
Benoit, having finished his education, wanted to work in business development. He enjoyed the international travel that was taking too much of his brother's time, as well as the nomadic lifestyle that came from living out of a suitcase.
At this point, the philanthropic activities managed by Gayle were more work than one person with a young family could manage, so she began to build a sizable department of her own.
Arnold considered all three of his children as equal, and therefore paid them all equally. Work-related expenses (such as travel and accommodations) were covered by drawing funds from the company.
May 2003 Generation 2
Alshaghathirah
Liam has now been running the company most of the time and has earned Arnold's respect and confidence on business matters. Still, Arnold has reservations about formally handing control of Alshaghathirah to Liam. Tension is starting to rise, as Liam has ideas about new markets within honey confectionery, but Arnold is not eager to change from their core business of pure honey. Liam's frustration is increasing, and he threatened to quit the company if he is not given independent charge. But can Arnold bear to let go?
Arnold: I've become used to the respect and prestige that comes with creating a successful business from the ground up. Plus I love Alshaghathirah; I just don't think I'm ready to be put on the sidelines. And there is so much at stake! If Liam makes a mistake and the business fails, what will happen to the family?
Victoria: We are not as young as we once were, and we should consider how best to enjoy our twilight years after all of this hard work.
Liam: I have been running the business under your guidance, and have been happy doing so. But you need to let go or I will quit!
Arnold asked Jean, a long time family friend, for advice.
Jean: How long will you continue? The business needs fresh blood to continue growing, and you need to let go. Your son has been working long enough to understand what the business needs. You should hand over the reins and take a step back.
Continue to oversee business operations Let go of the company
Arnold remains the final word on major business decisions for the time being. Liam makes good on his threats to quit, but returns every time. Evenually he reconciles himself to remaining a prominent figure under Arnold. The company does not make any drastic changes to its operations or product lines.
August 2012 Generation 2
Alshaghathirah
Liam instills a more participative management as the CEO, where the siblings discuss issues and, in the case of disagreements, defer to Liam.
Liam has spent significant time consolidating the business after Arnold's passing, and now faces the issues of professionalizing. Gayle and Benoit have been running their branches of Alshaghathirah for quite some time, and the business has become so large that outside expertise could be a good option. Talented high-level managers could help run the company and handle the operations that are overwhelming the three siblings.
Liam: The family business is my responsibility, my legacy. How can I trust someone else to run this properly? What if they ruin it all? I am not sure what good they will do, but can I take the risk? I don’t want to be the person who ruined the family business. And will I be allowed to contribute to the business if the professionals take over? My external advisors are saying that professionals have run other companies successfully, and these companies have grown and achieved great heights. What should I do?
Beth: What? You are not capable? Professionals will probably take the company underground. Outsiders cannot be better than family members. If you think you are not able to handle the company, then hand it over to your brother or nephew!
Jean: Every person has limits to their capabilities. The business has grown to a level far beyond your capabilities, which is a good thing, and now it could be run better by professional
management. You need to have processes and systems in place so that the business runs independently of you: this is what professionals can do.
Benoit: (Calling from Paris) I can take over and handle this better than any professional can! As long as it doesn't prevent me from traveling, of course.
Gayle: Would they replace the need for family members? Having more help would alleviate some stress, but I still want to be involved in the company.
Hire professionals Keep all major roles in the family
April 2013 Generation 2
Alshaghathirah
Gayle, Liam, and Benoit work together to find a chief operating officer (COO), who hires three outside professionals to manage the finances, operations, and marketing, respectively. The new COO comes from a large organic foods company and quickly demonstrates a thorough understanding of Alshaghathirah's retail business.
Liam: I think that, although many of you expressed doubts, we needed to take this step. We need to have good people to rely on in order to grow.
Victoria: I was afraid of this. You have taken the first step toward the destruction of the family legacy. These professionals will drive the company into the ground. They will never have the same level of commitment as family members!
Aline: I wonder if we really need all these people, which only add to our costs and would reduce our profits. Why not give additional responsibility to those who are already here?
Benoit: (Calling from Las Vegas) Yeah, you could have asked me to run the business! Anyway, the trade fair here in Las Vegas was tough; I'm late for my flight to a conference in Honolulu, you guys figure it out.
December 2016 Generation 2
Alshaghathirah
Until now, the company's board of directors has been a fairly informal gathering of family members meeting on an ad-hoc basis. Gayle questions the wisdom of this practice, as her professional work with nonprofits exposes her to a variety of governing boards.
Gayle: External people can enrich our board discussions by offering different points of view. Sometimes you need that, especially in cases where groups may think alike.
Benoit: (Calling from Honolulu) I think we should give preference to family members; after all, who knows our business better than us? Our mother died distressed that you brought in outsiders, Liam. Do you want to dishonor her memory by bringing in even more? I'll call you when I land in Rome; you can brief me on what happened.
Liam: Having independent directors has been recommended by a lot of people. Does this makes sense for our company? We are now a market leader. How would an external person help? What would they know about our business? Can we trust a stranger with the confidentiality of our trade secrets?
Build a mixed board Retain a family-only board
January 2018 Generation 2
Alshaghathirah
Liam: I think it is a right move. I hope that we get an alternate point of view which can serve as an independent sounding board to vet our decisions.
Benoit: Well, we have professionals in management positions already, what are a few more outsiders telling us what to do? I don’t know why this is needed, but I will go along with your decision.
Gayle: I think you’re being paranoid; this is a great step toward creating a big company that will really last long after we’re gone!
Jean: It is a wise choice, but I only hope that you choose a person who can be effective and more importantly, you listen to them!
June 2019 Generation 2
Alshaghathirah
Alshaghathirah has been growing steadily, and some of the younger managers believe that internal funds are not enough to cover their growth. Someone suggests that the company should turn to external investors for their funding requirements. The company has a good track record and the fundamentals are excellent, so attracting good external investors would not be a challenge. Outside funds would help Alshaghathirah grow faster, and external investors could also bring in additional expertise.
Liam: I wonder if we need external funds? They would allow us to grow much faster and not be dependent on our internal business funds. On the other hand, it might mean that we will be subject to the wishes of those who have invested in our company. But if we want to take the company to the next level we will need a large cash investment.
Gayle: Why do you want to grow so fast? We have enough to take care of the family needs and growing bigger would probably mean letting go of control or sharing control with others. Do we really need to do this?
Independent Board Member: Why not consider external funds, especially when you are growing so fast? And you said so yourself, the internal funds are not enough.
Continue to self-fund Acquire external funds
August 2019 Generation 2
Alshaghathirah
Liam: I think this is the right choice. We are growing at the right rate, there's no need to rush things. We can always borrow later if there is a need.
Benoit: Whatever you say, I hope this doesn't limit my travel budget. My business development activities are critical for the growth of our business.
Gayle: Steady growth is more important than fast growth.
October 2020 Generation 2
Alshaghathirah
So far, Alshaghathirah has diversified from pure honey only as far as honey-based confectionery, candies, syrups, and other treats. The COO shares ideas about branching into new products, such as personal and household products.
Liam: Should we diversify? The business is doing quite well, and diversifying would mean that we are diverting our profits into another field that we may not be best at.
Beth: This would mean lower dividends for all, would the rest of the family agree with that?
Henry: Diversification is a good strategy as it would help to avoid a situation where all our eggs are in the same basket. What if something happens to the honey business?
Benoit: (Calling from Beijing) I am not too happy with funds being invested in risky activities when they could be distributed directly to us.
Focus on and enhance current product lines Launch R&D effort into personal products
July 2021 Generation 2
Alshaghathirah
Liam: I don't want to move away from pure honey. This business runs in our veins, and it's the only business we know.
Gayle: Our dad would be happy that we are staying true to his legacy.
Benoit: I'm happy with this decision, although if we had diversified I was looking forward to traveling even more than I already do to handle new divisions.
January 2024 Generation 2
Alshaghathirah
Now that he is 60 years old, Liam is thinking about stepping down as CEO. He had always hoped his daughters Aline and Katharine would take over the family business' leadership after him. His youngest daughter, Celia, has a bee allergy and always avoided the business because of it.
Liam prepared Aline and Katharine their whole lives (sent them to the best schools, offered them jobs he hoped they would enjoy within Alshaghathirah); sadly, neither of them thrived. Aline conflicted with most of her direct reports, and Katharine lacked ambition and failed to advance through the ranks.
More broadly, Liam wonders if the business would continue to grow under the third generation. More family members could mean more disagreement and conflict. Who should lead? Would everyone else be able to follow?
Liam: I wonder what I should do? If I keep qualifications as a criteria then the business will have capable people running it, but that means some family members wouldn't progress in the company. Some family members could get very upset since this would prevent some of them from joining the business. Is the business a right for the family members to join, regardless of their qualifications? After all, if they were not family members, would I hire them? And what should I do about my daughters? I had always imagined Aline and Katharine taking my place when I retired, but most of the family considers them unfit for leadership. I have dedicated my entire professional life to Alshaghathirah, I don't want to make the wrong decision.
Beth: What difference do the qualifications make? Our children are our children. They are part of the family! It is their right to join the family business, regardless of their education or experience. Why should there be any conditions for them to join?
Gayle: A business should be run by competent, capable people, even if they aren't family. That is the only way a business can be successful. Look at how well we've done since hiring an outside COO and bringing in other board members.
Aline: The business is for the benefit of our family, so it is our right to use it for the benefit of our family.
Katharine: The family business supports our lifestyle. Our holidays, our houses, our cars, all of these come from the business. Our family has put so much sacrifice and hard work into the company, so it is only natural that the family should benefit from it. I have the right to join and work in the business, because I am part of the family. And family members should get more, since they are adding value to the business.
Announce Aline as the new CEO Open a formal CEO search
June 2024 Generation 2
Alshaghathirah
Liam: I need to ensure that Alshaghathirah provides employment opportunities for the family. After all it is a family business, and the family members should run the business regardless of their qualifications. Their birth into this family is qualification enough. What use is the business if family cannot join?
Benoit: While I agree that the family should run the business, Aline is not the right person for the job! Let's hope she doesn't do irreversible damage.
Beth: I like this decision. This will create a chance for all our kids to benefit from the family business. You should also ask our son-in-law to join.
Family Business Advisor: I'm a little concerned about choosing Aline over more qualified family members. Hopefully she is up to the challenge and communicates well with the board.
May 2028 Generation 3
Alshaghathirah
Aline manages to alienate all the managers in the business with her attitude. Most of the managers in top management leave the company. Company profits decline; this causes Henry to object to the resulting decline in available dividends.
A family business professor from a reputable business school is brought in as an external mediator to resolve the issue. He advises putting a governance system in place and moving the family out of management, hiring professionals instead. The family also invites a professional from another respected family business that recently faced these challenges to advise them; she agreed with the suggestions of the family business professor.
Aline: Why should I have to step down? It is my right to be heading this company, and my father worked the hardest for today's success. On the other hand, how can I let the company built by my grandfather perish? This is too large for me to handle. Should I get an external person to run the business and step down? But I will be regarded as a failure for not being at the helm.
Henry: You have to let go. It is not a question of your right, but the fact that the company has to be run by the best qualified person to run it, and that is not you.
Gayle: Your grandfather’s legacy should not be allowed to die. Your father worked hard to maintain it, and it is your responsibility to ensure that the company is run well. After all, the entire family depends on the dividends. Perhaps my son would be a better successor.
Family Business Advisor: Your responsibility is to make sure the company thrives. That means you ensure that the best person is hired to run the company, it does not mean you have to run it.
Aline steps down
Aline does not step down
June 2028 Generation 3
Alshaghathirah
Aline: This is too big for me to handle. I have tried, but realized that I cannot succeed in this role. I should step down so that we can bring in someone more competent to run the business. Of course, I am extremely capable, but I can do more in other areas.
Gayle: This shows a great deal of maturity on Aline's part. We need to preserve the family legacy. I am happy that you have taken this step.
Family Business Advisor: A very wise move. Now I would suggest creating a set of governance processes in place and bringing in a few professionals to help run things.
Henry: Excellent choice, Cousin! We are all very proud of your wise decision. Family need not be always running the business!
Olivier: What a lousy move! Are you out of your mind? You have just gifted our company to total strangers and away from our control. You will regret this move forever, and we will never get the company back!
May 2028 Generation 3
Alshaghathirah
After discussing with the board and some outside advisors, Simone proposes that the best thing for Alshaghathirah in the long term would be to create governance processes. Setting up governance includes creating rules for employment, compensation, and qualifications for the current and present leadership. The need for governance is felt as the family is becoming a lot bigger, and the business more complex.
Olivier: I really don’t understand the purpose of governance process. Though the advisors and other families are insisting that this process helped them grow, I still cannot figure out why would anyone willingly put constraints on what they can or cannot do.
Gayle: But if the others are saying it works then there must be some wisdom in this.
Family Business Advisor: A governance process is essential if you have to grow. It is not a restriction; rather, it puts the rules in place. The rules can be defined by the family, but this is the best way to ensure that there is accountability and responsibility for managing the business in the best manner possible. It regulates the relationship between the family and the business.
Katharine: Why do we have to restrict the powers? Why should we want to change when things are going fine?
Minor shareholders do not set up governance Minor shareholders set up governance
June 2028 Generation 3
Alshaghathirah
Olivier: Governance processes really make no sense as long as the family is still the majority of management control.
Henry: I don't know, this sounded like a smart move. Simone has been a good leader so far; I'm worried we made the wrong choice not listening to her.
Katharine: Governance will not help, it is just another pretext used by Simone to consolidate her position over all of us.
January 2029 Generation 3
Alshaghathirah
There have been fights on the board level and within the family. Non-management family shareholders feel that the current family managers are doing a poor job running the company and that growth could be higher. Some of them are demanding more dividends, but this is refused by other board members who want those funds reinvested into the business.
Current management is willing to raise money and buy the other shareholders out, and would prefer this so they can run the company without catering to so many family demands. However, the minor shareholders think this is a tactic to take away their rightful inheritance.
Aline: It is clear that Henry and I cannot see eye to eye. Now the independent directors on the board are suggesting that we sell our shares to one family member to avoid these disputes. Considering my leadership history, I doubt anyone would sell to me. But I don't know that I want to sell and not be a part of the business. It is my family too!
Henry: Managing the way we are now is not sustainable for the company. Minor shareholders have no special right to stay on just because they are family; they should step down so the business can focus and stay on track. I think I could buy the others out, and I have the ability to raise funds from my financial services business. Will they agree?
Zoe: Hi, we've never met, but my brother Harry and I are the children and heirs of Charlotte, who was once married to your uncle Benoit. Our mother told us we each had over 8% stake in this company. What do you do here anyway, sell bees? So, how can we cash out our inheritance?
Family Business Advisor: This is a mess. If you cousins cannot reach any agreement, it would be best if the others sell to one person and consolidate the shareholdings.
Buyout of minor shareholders No buyout of minor shareholders
January 2034 Generation 3
Alshaghathirah
Aline: Well, I don't have the money to buy out the other shareholders, but Henry has raised funds from an external investor and is buying us out. I think it is better that I cash out.
Henry: I have offered a very attractive price based on our valuations. I promise I'll take good care of the company and honor our grandfather's memory.
Zoe: I am happy to sell since I will not get any other method of exiting from this company. This family is crazy.
Olivier: This company belonged to my grandfather and it is important to me. I believe that Henry is a better person to run the company, and I have no problem with him in charge. I won't sell, but will go along with Henry.
January 2035 Generation 3
Alshaghathirah
Alshaghathirah has been growing steadily using bank loans for growth. However, there are competitors growing faster, and the company has lagged behind. One path to faster growth would be to initiate an IPO (initial public offering) to raise funds. Some family and board members feel that an IPO would help raise the profile of the company, attract more talent, and enhance the company image in the public eye. Listing Alshaghathirah would also provide the possibility for liquidity, should any family member want to sell their shares.
However, management feels that even faster growth could mean compromising on product quality, so they prefer not to take that risk. Additionally, the company would be under constant public gaze and subject to increased compliance and regulations. The family would have to consider that their freedom to operate would be drastically reduced as they would now have to consider the views of the public shareholders.
Aline: I don't like this idea at all! How can we trust the public to make good decisions? Professionals and external board members make sense, but not random people who might not know anything about our business.
Henry: Our competitors have grown tremendously and we need funds to compete with them. Plus, some of our investors are considering leaving. We are faced with no alternative: we need to go public.
Olivier: I think that you have conspired to sell our family jewels to the public and extinguish whatever we have left of our family assets, Henry !
Family Business Advisor: It looks to me like your growth will stall if you don't file for an IPO.
No IPO IPO
September 2035 Generation 3
Alshaghathirah
Henry: I think going public is a good idea. We do not have to solely depend on the company’s profits or borrowing to fund our growth. We are competing with larger players, so it becomes
important for us to bring in more resources, talent, and expertise. It will be much easier to do that as a public company.
Family Business Advisor: This was a smart move. Growing companies need additional money to remain relevant, and this is a one of the ways to do that.
Olivier: You have sold our company our family inheritance! We will be exposed to all the ills that we see listed companies having. This is a sad day for our family. You have set us on the path to ruin.
Aline: This would give all of us an exit route and we will probably value our shares more realistically. I suppose you were right, Henry. This is probably a good choice for the business, I see that now.
Epilogue Generation 3
Alshaghathirah
It has been over 50 years since Arnold started Alshaghathirah, and Henry's daughter Talia is taking over the family board seat. Unlike previous leadership, the fourth generation decides to manage from the board level rather than be involved in the day-to-day operations. The honey business has grown more and more competitive, and Alshaghathirah has done very well in the organic cosmetics and wellness space. The board decides they should completely divest from honey and focus much more on natural products. Henry’s descendants own stakes in the company; they each receive enough dividends every year to fund their lifestyles. The rest of the
family left the company during the IPO in 2035, and although they are all doing very well for themselves, they resent Henry and feel he cheated them out of their part of the company’s growth after the buyout.
You've reached the end of the simulation. Review your results below:
Business You achieved Closed Business Global International Regional Multinational National Regional Local Closed Available Business Types: Global International, Regional Multinational, National, Regional, Local, Closed
In the years after the fourth generation takes control of the company, most of the family end up fighting each other in courts. Alshaghathirah operations are all but ignored while lawsuit after lawsuit takes the leadership's attention. Younger family members seek stable employment elsewhere.
Eventually, French cosmetics company La Ruche buys up what is left of Alshaghathirah, and the family is left with only their memories and Arnold's tradition of giving two drops of honey to each new baby on their first birthday.
Family Your family relationship is Medium
Family members would prefer a little more say in running the business.
Ownership Your ownership value is Medium
Most of the shareholders have stayed with the company.